In Milstein v. Harris,Case No. 2021-2776 (Ohio Bd. of Tax App., Oct. 5, 2026), the Ohio Board of Tax Appeals (the “Board”) affirmed a final determination of the Tax Commissioner of Ohio (the “Commissioner”) rejecting a trust beneficiary’s attempt to claim, on his personal Ohio return, depreciation deductions that Ohio law assigns to the trust. This case serves as an example of differences between federal and state income tax deduction and allocation rules.
The Facts: Brock Milstein (“Mr. Milstein”) is the sole beneficiary of the Carl Milstein Trust (the “Trust”), an irrevocable non-grantor trust governed under Ohio law. For the 2017 tax year, the Trust filed a federal income tax return and an Ohio fiduciary income tax return. Separately, Mr. Milstein filed a personal federal income tax return and an Ohio income tax return. During the 2017 tax year, the Trust distributed all of its adjusted total income (federal income subject to Ohio statutory adjustments) to Mr. Milstein.
The Trust followed generally accepted federal reporting requirements and did not report any income for federal income tax purposes. Instead, Mr. Milstein personally reported all the income. Mr. Milstein rationalized that federal income tax allocation concepts applied because his 2017 distributions from the Trust were larger in proportion to the Trust’s retained earnings than they were in the year the Trust first added back the depreciation. In layman’s terms, Mr. Milstein attempted to claim on his own return a portion of the depreciation the Trust had added back in a prior year based on a change in circumstances. The Ohio Department of Taxation disallowed this application, and Mr. Milstein filed a Petition for Reassessment arguing that (i) Ohio depreciation adjustments should be apportioned between the Trust and Mr. Milstein based on the income allocated to each, and (ii) adjustments reported by the Trust to convert federal taxable income to Ohio taxable income must also be apportioned between the Trust and Mr. Milstein, based on the income allocated to each. Mr. Milstein attempted to present additional arguments on appeal that he had not raised in his Petition for Reassessment, and the Board declined to consider those arguments.
The Law: As a threshold matter, a non-grantor trust is a separate legal entity from its beneficiaries. Pursuant to both federal and Ohio statutes, a trustee may distribute income from a trust to its beneficiaries and may also allocate deductions to those beneficiaries. However, federal allocation rules differ from those applied in Ohio. Ohio levies an income tax on individuals residing in, or earning or receiving income in Ohio, based on the individual’s Ohio adjusted gross income. See R.C. 5747.02. The foregoing income tax is separate and distinct from federal income tax and is based on a different definition of income. Ohio also levies a fiduciary income tax on a trust’s retained earnings based on the trust’s modified Ohio taxable income (as adjusted by Ohio statutory add-backs). See R.C. 5747.02. The fiduciary income tax is also based on a concept separate and distinct from federal taxable income. Additionally, in 2017, R.C. 5747.01(A)(20)(a)(i) and R.C. 5747.01(A)(21)(a)(i) required taxpayers to add back 5/6 of accelerated depreciation claimed on the taxpayer’s federal return in any given tax year (as a non-deductible expense) and to spread such amount over the five following tax years, as a deduction against Ohio taxable income.
The Decision: The Board found that Mr. Milstein lacked a basis for his application of federal deduction and allocation rules to accelerated depreciation add-backs under Ohio law. The Board explained that R.C. 5747.01(A)(20)(a)(i) andR.C. 5747.01(A)(21)(a)(i) are clear and that federal income tax regulations do not control. Therefore, the Trust was eligible to claim a deduction of 1/5 of the accelerated depreciation add-back in each of the five years following the year of the add-back. The Board noted the absence of authority allowing a taxpayer to pass an add-back through a trust to a beneficiary to personally offset such beneficiary’s future Ohio personal income taxes. Mr. Milstein could only claim a deduction allowed under the foregoing statutes, which was equal to 1/5 of a 5/6 add-back in each succeeding tax year after the federal accelerated depreciation deduction.
Separately, the Board noted that a taxpayer could claim a deduction from the pass-through entity tax liability (an Ohio tax liability distinct from Mr. Milstein’s personal Ohio taxes), but only to the extent that it represented 1/5 of the amount added back on an Ohio pass-through withholding return for the year the accelerated depreciation was claimed on the federal income tax return.
Takeaway: In administering non-grantor trusts that are treated as separate and distinct taxpayers from their beneficiaries for income tax purposes, trustees and beneficiaries are required to analyze and apply local statutes rather than assume that federal income tax deduction and allocation rules apply. Additionally, in challenging an assessment, a taxpayer must present all arguments in its petition for reassessment, because the Board will consider only issues raised before the Commissioner.
This update is one in a series of updates written for the October 2026 edition of The BR State + Local Tax Spotlight.
© 2026 Blank Rome LLP. All rights reserved. Please contact Blank Rome for permission to reprint. Notice: The purpose of this update is to identify select developments that may be of interest to readers. The information contained herein is abridged and summarized from various sources, the accuracy and completeness of which cannot be assured. This update should not be construed as legal advice or opinion, and is not a substitute for the advice of counsel.